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Regional A/V Chains Fine-Tuning Custom

Outperformed by dedicated custom-installation specialists at the high end of the market and outnumbered by mass merchants skilled at moving boxes, regional audio/video retail chains are trying to carve a custom niche that's lucrative and within their comfort level.

Their strategies vary, but the bottom line is the same: A piece of the custom pie is essential for the survival of the A/V specialty chain.

With as much as 10 years experience in the market, some chains have fine-tuned their approaches to focus more on small projects instead of projects that take a year or two to complete. And some chains are moving into areas that were once the province of the independents: lighting, phone wiring and security.

However they approach the market, they're all leveraging their specialty focus and merchandising muscle to set themselves apart from mass merchandisers and independent installation companies.

In only the past year or two, said Niles marketing VP Al Burdett, some regional specialty chains have altered their custom approach to take greater advantage of a market that has boomed with the economy.

"They've always been in it, but they really got behind it in the past year and a half," Burdett said. "The retailers are finally putting an organized front to it [in their retail displays], and consumers are driving it."

For example, he said, "Ultimate built active displays so customers can interact with in-wall volume controls and with speaker selectors."

Chains have also trained their sales staffs to step customers up to the custom option.

"A lot of the higher-end installers are comfortable with the chains creating awareness of the custom business," he added, "because the high-end installers can do the quarter- to half-million-dollar jobs that the chains can't."

For Boston-based Tweeter Home Entertainment Group, "the custom market is critical. It's something we must do," said Bernie Sapienza, merchandising VP The custom business "is our rightful place" based on the products, clientele, specialty focus, advertising muscle, and all the other value-added traits that set specialty chains apart from mass merchandisers and independent installation companies.

The marketing capability already in place will enable the Tweeter group to bring in customers, Sapienza maintained.

Tweeter Home Entertainment Group's 76 stores comprise Tweeter, Hi Fi Buys in Atlanta, Dow Stereo/Video in San Diego, Bryn Mawr Stereo in Philadelphia, and Home Entertainment in Texas. Building the custom business at the same time the company is expanding its store count is a dual challenge, but the custom share is an integral part of the company's future, Sapienza said.

"We envision that revenues from the average store will increase by 20% as a result of our expertise in custom," he continued. "Most people don't know that they need custom installation. We have to arouse them and show them how custom audio and video can improve their lifestyle."

Training salespeople is essential to the success of a custom business. Tweeter contracted Eric Bodley, principal consultant for Bodley & Associates of Bonita Springs, Fla., for his IHAV (In-Home Audio/Video Specialists) training program. Bodley started the program in response to an "us-versus-them" scenario that developed at retail between the floor salespeople and custom salespeople.

"I observed that as regional chains' products became more installation-oriented to a point beyond what retail salespeople could handle, they'd hand over the sale to custom, and it became an all-or-nothing thing," Bodley said.

With no incentive to close a custom deal, salespeople would often undersell in order to keep the whole sale, he added. Even if there was a split on commissions, the custom side would often become overloaded with referrals, leaving the custom side to have to choose between a $5,000 and $50,000 job. Smaller jobs fell through the cracks, and sales were lost.

Bodley's four-day training course (at roughly $1,000 a head) educates salespeople about distributed-audio and -video systems, how to evaluate a room for home theater, how to overcome customers' resistance to installation fees, and how to step customers up to additional electronics purchases. He also outlines a split sales structure that rewards both custom and floor salespeople.

At the Florida-based Sound Advice chain, president Peter Beshouri said custom installation is a natural venture for his service-oriented retail business. Out of $200 million in annual sales, Sound Advice delivers, sets up, designs and engineers, and customs installs about $140 million worth of products, including car products.

"Five years ago," Beshouri said, "a customer came in, put the products in the car, and drove away. Those days are gone because you're no longer just setting up a TV and VCR. If you're taking home a DVD player, a big-screen TV and an A/V receiver, it's a totally different experience that requires our expertise [to set up]."

Sound Advice has been in the custom market for 10 years and has ridden the learning curve along the way. What doesn't work, Beshouri learned, is sending salespeople to specify a job for a client because "salespeople have a tendency to undersell in an effort to get the job."

So he borrowed a concept from corporate culture using a team approach built around a project supervisor.

Under the new approach, the supervisor, salesperson and installation specialist go into the prospective client's home as a team. The installer determines what's possible based on the wiring and infrastructure that's in place, and the salesperson determines which products best fit each of the clients based on their needs and budgets.

The supervisor outlines for the customer what's possible, discussing options such as outdoor speakers and multiroom audio, which the homeowner may not have considered.

"We tell them that for an incremental increase in cost, they can have a simple system that provides them with a lot more pleasure in life," Beshouri said. "Our goal is to get customers to spend more and be happy they did."

Currently, Sound Advice is focusing on projects under $50,000, but Beshouri said that will change as the company gains expertise in other areas that are now the domain of independent installation companies.

Independents currently boast as much as 30% of revenues from sales of lighting systems to insulate their business from chains such as Sound Advice, but Beshouri said it won't be long before his chain moves into that territory, and "as we get better, we're going to take more share from them."

At Ultimate Electronics in Denver, the strategy is different. Installation VP Gerry Demple said the chain stopped chasing the deals that take a year or two to complete.

After pursuing "the big game hunt" in its Denver and Minneapolis stores, he said, company execs felt the strategy was inconsistent with the chain's marketing plan and distribution.

"Most projects are now very short, and most are true retail deals" handled by the chain's A/V salespeople, Demple said.

"Most people who come into our stores are not going to spend $50,000 to $100,000, but they will do a $5,000-to-$10,000 installation. We could do [two-year projects], but it would require a different focus. The other part of the pie is more in line with what we do," he said.

Like many A/V specialty chains, Ultimate is changing its approach as it learns to navigate the market. To gets its slice, the retailer rolled out reconfigured active displays in all its stores last year.

In other changes, Ultimate plans to expand into the security market, just as many security installers are looking to branch out into home theater and multiroom audio.

Taking on security systems is a way for Ultimate to cement relationships with the builder community, which prefers to deal with a single subcontractor rather than several for wiring, phone systems, security and entertainment.

"Builders are telling us they don't want to call three people," Demple said, "so we're doing phone, wiring and security systems to make it easier for them."